[Peace-discuss] Obama's people

[C. G. Estabrook]

	Rahm Emanuel's profitable stint at mortgage giant
	Short Freddie Mac stay made him at least $320,000
	By Bob Secter and Andrew Zajac | Chicago Tribune
      	March 26, 2009

Before its portfolio of bad loans helped trigger the current housing
crisis, mortgage giant Freddie Mac was the focus of a major
accounting scandal that led to a management shake-up, huge fines and
scalding condemnation of passive directors by a top federal regulator.

One of those allegedly asleep-at-the-switch board members was
Chicago's Rahm Emanuel—now chief of staff to President Barack Obama—
who made at least $320,000 for a 14-month stint at Freddie Mac that
required little effort.

As gatekeeper to Obama, Emanuel now plays a critical role in
addressing the nation's mortgage woes and fulfilling the
administration's pledge to impose responsibility on the financial world.

Emanuel's Freddie Mac involvement has been a prominent point on his
political résumé, and his healthy payday from the firm has been no
secret either. What is less known, however, is how little he
apparently did for his money and how he benefited from the kind of
cozy ties between Washington and Wall Street that have fueled the
nation's current economic mess.

Though just 49, Emanuel is a veteran Democratic strategist and
fundraiser who served three terms in the U.S. House after helping
elect Mayor Richard Daley and former President Bill Clinton. The
Freddie Mac money was a small piece of the $16 million he made in a
three-year interlude as an investment banker a decade ago.

In business as in politics, Emanuel has cultivated an aggressive,
take-charge reputation that made him rich and propelled his rise to
the front of the national stage. But buried deep in corporate and
government documents on the Freddie Mac scandal is a little-known and
very different story involving Emanuel.

He was named to the Freddie Mac board in February 2000 by Clinton,
whom Emanuel had served as White House political director and vocal
defender during the Whitewater and Monica Lewinsky scandals.

The board met no more than six times a year. Unlike most fellow
directors, Emanuel was not assigned to any of the board's working
committees, according to company proxy statements. Immediately upon
joining the board, Emanuel and other new directors qualified for
$380,000 in stock and options plus a $20,000 annual fee, records
indicate.

On Emanuel's watch, the board was told by executives of a plan to use
accounting tricks to mislead shareholders about outsize profits the
government-chartered firm was then reaping from risky investments.
The goal was to push earnings onto the books in future years,
ensuring that Freddie Mac would appear profitable on paper for years
to come and helping maximize annual bonuses for company brass.

The accounting scandal wasn't the only one that brewed during
Emanuel's tenure.

During his brief time on the board, the company hatched a plan to
enhance its political muscle. That scheme, also reviewed by the
board, led to a record $3.8 million fine from the Federal Election
Commission for illegally using corporate resources to host
fundraisers for politicians. Emanuel was the beneficiary of one of
those parties after he left the board and ran in 2002 for a seat in
Congress from the North Side of Chicago.

The board was throttled for its acquiescence to the accounting
manipulation in a 2003 report by Armando Falcon Jr., head of a
federal oversight agency for Freddie Mac. The scandal forced Freddie
Mac to restate $5 billion in earnings and pay $585 million in fines
and legal settlements. It also foreshadowed even harder times at the
firm.

Many of those same risky investment practices tied to the accounting
scandal eventually brought the firm to the brink of insolvency and
led to its seizure last year by the Bush administration, which
pledged to inject up to $100 billion in new capital to keep the firm
afloat. The Obama administration has doubled that commitment.

Freddie Mac reported recently that it lost $50 billion in 2008. It so
far has tapped $14 billion of the government's guarantee and said it
soon will need an additional $30 billion to keep operating.

Like its larger government-chartered cousin Fannie Mae, Freddie Mac
was created by Congress to promote home ownership, though both are
private corporations with shares traded on the New York Stock
Exchange. The two firms hold stakes in half the nation's residential
mortgages.

Because of Freddie Mac's federal charter, the board in Emanuel's day
was a hybrid of directors elected by shareholders and those appointed
by the president.

In his final year in office, Clinton tapped three close pals:
Emanuel, Washington lobbyist and golfing partner James Free, and
Harold Ickes, a former White House aide instrumental in securing the
election of Hillary Clinton to the U.S. Senate. Free's appointment
was good for four months, and Ickes' only three months.

Falcon, director of the Office of Federal Housing Enterprise
Oversight, found that presidential appointees played no "meaningful
role" in overseeing the company and recommended that their positions
be eliminated.

John Coffee, a law professor and expert on corporate governance at
Columbia University, said the financial crisis at Freddie Mac was
years in the making and fueled by chronically weak oversight by the
firm's directors. The presence of presidential appointees on the
board didn't help, he added.

"You know there was a patronage system and these people were only
going to serve a short time," Coffee said. "That's why [they] get the
stock upfront."Financial disclosure statements that are required of
U.S. House members show Emanuel made at least $320,000 from his time
at Freddie Mac. Two years after leaving the firm, Emanuel reported an
additional sale of Freddie Mac stock worth between $100,001 and
$250,000. The document did not detail whether he profited from the sale.

Sarah Feinberg, a spokeswoman for Emanuel, said there was no conflict
between his stint at Freddie Mac and Obama's vow to restore
confidence in financial institutions and the executives who run them.
At the same time, Feinberg said Emanuel now agrees that presidential
appointees to the Freddie Mac board "are unnecessary and don't have
long enough terms to make a difference."

Former President George W. Bush voluntarily stopped making such
appointments following Falcon's assessment of their uselessness.

In an interview, Falcon said the Freddie Mac board did most of its
work in committees. Yet proxy statements that detailed committee
assignments showed none for Emanuel, Free or Ickes during the time
they served in 2000 or 2001. Most other directors carried two
committee assignments each.


Contrary to the proxy statements, Feinberg said she believed that
Emanuel served on board committees that oversaw Freddie Mac's
investment strategies and mortgage purchase activities. But Feinberg
acknowledged she had no official documents to back up that assertion.

The Obama administration rejected a Tribune request under the Freedom
of Information Act to review Freddie Mac board minutes and
correspondence during Emanuel's time as a director. The documents,
obtained by Falcon for his investigation, were "commercial
information" exempt from disclosure, according to a lawyer for the
Federal Housing Finance Agency.

Emanuel's board term expired in May 2001, and soon after he launched
his Democratic congressional bid.

One of Emanuel's fellow directors at Freddie Mac was Neil Hartigan,
the former Illinois attorney general. Hartigan said Emanuel's primary
contribution was explaining to others on the board how to play the
levers of power.

He was respected on the board for his understanding of "the dynamics
of the legislative process and the executive branch at senior
levels," Hartigan recalled. "I wouldn't say he was outspoken. What he
was, was solid."

By the time Emanuel joined Freddie Mac, the company had begun to
loosen lending standards and buy riskier sub-prime loans. It was a
practice that later blew up and contributed to the current
foreclosure crisis.

In his investigation, Falcon concluded that the board of directors on
which Emanuel sat was so pliant that Freddie Mac's managers easily
were able to massage company ledgers. They manipulated bookkeeping to
smooth out volatility, perpetuating Freddie Mac's industry reputation
as "Steady Freddie," a reliable producer of earnings growth. Wall
Street liked what it saw, Freddie Mac's stock value soared and top
executives collected their bonuses.

Another focus of Freddie during Emanuel's day—and one that played to
his skill set—was a stepped-up effort to combat congressional demands
for more regulation.

During a September 2000 board meeting—midway through Emanuel's 14-
month term—Freddie Mac lobbyist R. Mitchell Delk laid out a strategy
titled "Political Risk Management" aimed at influencing lawmakers and
blunting pressure in Congress for more regulation. Through Delk's
initiative, Freddie Mac sponsored more than 80 fundraisers that
raised at least $1.7 million for congressional candidates despite a
federal law that bans corporations from direct political activity.

Emanuel spokeswoman Sarah Feinberg said Emanuel "can't remember the
meeting or topic" but might have been in attendance when Delk
outlined his plans. Feinberg downplayed the significance of the
fundraiser thrown for Emanuel, which brought in $7,000, stressing
that it was but one of many hosted by Delk. The event stood out in at
least one respect, however.

The Freddie Mac-linked events were mostly for Republicans, and only a
handful benefited Democrats like Emanuel. "Rahm was a good friend of
mine. He was on Freddie Mac's board. He was very much supportive of
housing," said Delk, who resigned under pressure in 2004.

Then-Freddie Mac CEO Leland Brendsel also hosted a fundraising lunch
for Emanuel's 2002 campaign that netted $9,500 from top company
executives. Brendsel was later ousted in the accounting scandal.

Federal campaign records show that Emanuel received $25,000 from
donors with ties to Freddie Mac in the 2002 campaign cycle, more than
twice the amount collected that election by any other candidate for
the U.S. House or Senate.

Emanuel joined the House in January 2003 and was named to the
Financial Services Committee, where he also sat on the subcommittee
that directly oversaw Freddie Mac. A few months later, Freddie Mac
Chief Executive Officer Leland Brendsel was forced out, and the
committee and subcommittee launched hearings to sort out the mess,
spanning more than a year. Emanuel skipped every hearing,
congressional records indicate.

Feinberg said Emanuel recused himself "from deliberations related to
Freddie Mac to avoid even the appearance of favoritism, impropriety
or a conflict of interest."

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